Published in: Amity Case Research Journal 3; 2014; 60-65 Performance Evaluation of Gold Exchange traded funds listed on NSE *Prof. Y.V.Reddy. **Ms. Namrata S.Wagle. ***Ms.Maithili S.Naik. ABTRACT The objective of this empirical study is to evaluate the performance of Gold Exchange traded funds in the framework of risk and return from the time of inception of the schemes to December 2012. The major performance evaluation measures used are Treynor s performance index, Sharpe s performance index and Jensen s performance index. The results indicate that the Gold exchange traded funds have managed to achieve their objective of seeking to generate returns that closely correspond to returns provided by the domestic price of gold through investment in physical gold by minimizing the tracking error between the fund and the underlying asset. Keywords: Gold Exchange traded funds, performance evaluation, NSE, Rate of return, Standard deviation, Beta Treynor s index, Sharpe s index, Jenson s performance index, *HOD & Dean, Department of Commerce, Goa University, Taleigao-Goa. Email: yvreddy@unigoa.ac.in. **Assistant Professor of commerce, Dempo College of Commerce and Economics, Panaji- Goa Add: Wagle residence, H.No. 624, Near Green acres Tonca, Caranzalem- Goa. Email: namwagle@gmail.com. ***Assistant Professor of Commerce, Shree Damodar College of Commerce & Economics,Margao-Goa. Add: Nanu House, V.V. Road, P.O.Box 125, Margao-Goa. Email: mkeny20@gmail.com
Performance Evaluation of Gold Exchange Traded Funds listed on NSE INTRODUTION The objective of this paper is to evaluate the performance of all the Gold ETFs listed on the National Stock Exchange from inception till December 2012. The performance of measures used are Treynor ratio, Sharpe ratio and Jensen measure. This paper chooses to study Gold ETFs as Gold has been a vital investment option in a sluggish economy that we face in India since the last decade. Gold has always been very popular with Indians. Among asset classes, gold is considered the most robust as it counters the effects of inflation and exchange rate fluctuations. Studies have proved that Gold has a weak correlation with equity, which makes it an ideal asset for diversification in an investment portfolio making it more stable and resilientto market fluctuations. If one considers gold's performance vis-a-vis equity in the past five years, the latter, as measured by the BSE Sensex, has delivered an annualized return of just 2.67% compared to gold, which has delivered 27.19% annualized return over the same period (Economic Times). Gold ETF is a passively managed open-ended mutual fund whose units represent physical gold that is 99.5% pure, with each unit representing 1 gram of gold. These units are traded on the stock exchanges like a single stock of a company. Gold ETFs are intended to give investors an opportunity to participate in the gold bullion market without the necessity of taking physical delivery of gold and to be able to buy and sell this participation through the trading of a security on the stock market. The benefits of Gold ETFs vis-à-vis physical Gold are manifold. Gold ETFs can be purchased in small denominations of minimum I unit which is equal to I gram in most schemes. Gold ETFs are held in dematerialized form and hence do not face the risk of theft. Gold ETFs can be bought and sold at transparent prices across India on BSE or NSE. The buyer also
benefits in terms of taxation as there is no Sales tax, wealth tax, VAT or Securities transaction tax on Gold ETFs. Like stocks traded on an exchange, units of such funds are eligible for longterm capital gains after one year unlike physical gold which is eligible for long-term capital gains after three years. However the advantages of holding Gold ETFs come at a cost. The fund house charges a small asset management fee hence the actual return from the Gold ETFs is slightly less than the actual increase in the gold price. There is also a brokerage or commission charged by the broking firm at the time of buying and selling these units. Investors should select Gold ETFs which are liquid at the time of investing as otherwise this will impact their buying and selling flexibility. At present there are 16 ETFs being traded on the BSE and NSE. METHODOLOGY This paper makes an attempt to study the performance of 13 Gold ETFs listed on the National Stock Exchange. The Gold ETFs were analyzed in detail from inception till December 2012. The study is based on secondary data. For evaluating the performance of the funds under study the adjusted monthly NAV data from inception till December 2012 has been collected from www.nseindia.com and the gold spot price for the period under study has been retrieved from www.mcxindia.com. Performance Evaluation Measures: The purpose of performance evaluation of the Gold ETFs is to compare the returns obtained by the portfolio through active management by the investment manager. Also the portfolios have been compared with a benchmark index which in this case is the gold spot price. For performance evaluation of the Gold ETFs two types of techniques are applied- measures that consider total risk and measures that consider systematic risk. The performance measures used for evaluating the selected gold ETFs are: a) Rate of Return b) Standard deviation c) Beta d) Sharpe s measure e) Treynor s measure and f) Jensen s measure.
ANALYSIS AND DISCUSSION: Table 1: Annual returns of Gold ETF schemes listed on NSE from inception to December 2012. GOLD ETF SCHEMES LISTED ON NSE. 2007 2008 2009 2010 2011 2012 GOLD BEES 2.3130 1.6652 1.2332 1.7168 2.8804 0.6585 GOLD SHARE 2.6972 1.7093 1.3035 1.6987 2.7844 0.8057 KOTAK 5.3522 1.7474 1.2775 1.6921 2.9296 0.6884 RELGOLD 7.0978 1.4789 1.2482 1.7060 2.9776 0.6749 QGOLD 1.1694 1.2783 1.6957 2.9327 0.6699 RELIGARE 2.0349 2.9216 0.6907 AXIS GOLD -1.7930 2.8899 0.7171 HDFC GOLD 0.9817 2.8775 1.2531 ICICIP 0.8628 2.8612 0.7323 BSL GOLD 2.9429 0.7269 IDBI -1.2494 0.5980 CR GOLD 0.6791 MGOLD 0.7751 Gold Spot Market 2.1106 1.8883 1.1752 2.1020 3.0686 0.7442 Interpretation: It can be observed from Table 1 that there were only 4 schemes launched on NSE in the year 2007. Of these schemes, Reliance Gold ETF performed the best with the highest return (7.0978) followed by Kotak Gold ETF (5.3522). However these two schemes have started fairly late in the year as Reliance Gold ETF was launched in November 2007 and Kotak Gold ETF was launched in August 2007. Gold BeEs was the first Gold ETF to be launched in India by Benchmark Asset Management Co. Pvt. Ltd. in March 2007 followed by Goldshare a Gold ETF launched by UTI Mutual Fund in April 2007. It is observed that all the schemes have performed better than the market (2.1106) in the year 2007. In 2008, all the Gold ETFs have given returns lower than the market (1.8883). However the returns from Gold ETFs have been positive as compared to returns from other mutual funds invested in sectors like banking, infrastructure, FMCG, index funds etc. which have given negative returns in 2008 because of the financial meltdown as shown in a study by B.P.Raju and K.M.Rao (Risk Adjusted performance evaluation of selected Indian mutual fund schemes). The Gold ETFs show a slightly improved
performance in 2009, also as compared to the benchmark. In 2010 the returns diminish again with Axis Gold ETF delivering negative returns (-1.7930). IDBI Gold ETF posts negative returns (-1.2494) in 2011 while other schemes show a slight recovery compared to returns in 2010 but are unable to beat the market returns. In 2012 all the gold ETFs have performed more or less at par with the market (0.7442). On the whole we can infer that none of the Gold ETFs have been able to outperform the market to a great extent. The returns delivered have been close to the market returns. Table 2: Standard deviation Values of Gold ETF schemes listed on NSE from inception to December 2012. GOLD ETF SCHEMES LISTED ON NSE 2007 2008 2009 2010 2011 2012 GOLD BEES 4.3431 6.4799 4.3896 3.6568 5.3934 1.9619 GOLD SHARE 3.7435 6.1349 4.3574 3.2606 5.6379 2.1230 KOTAK 2.1649 6.4538 4.2488 3.6853 5.4562 1.9723 RELGOLD 3.3742 6.6100 4.5068 3.6225 5.2473 1.8885 QGOLD 7.0893 4.3498 3.6738 5.2480 1.9656 RELIGARE 3.9567 5.5604 2.1479 AXIS GOLD 1.5920 5.2087 1.8982 HDFC GOLD 2.4756 5.2422 2.1581 ICICIP 3.2415 5.0277 2.1280 BSL GOLD 6.8512 1.5347 IDBI 5.2129 2.2918 CR GOLD 2.0236 MGOLD 2.0196 Gold Spot Market 4.3842 7.1207 4.5447 3.8660 5.6589 1.9859 Interpretation: Table 2 presents the risk in terms of standard deviation of returns of the Gold ETFs. In 2007, the Gold ETFs are less risky than the market(4.3842) except for Gold BeEs (4.3431) which is almost as risky as the market. In 2008 Quantum gold ETF (7.0893) is the
riskiest of all the funds and carries almost as much risk as the market (7.1207). In 2009 all the Gold ETFs show riskiness almost at par with the market risk (4.5447). In 2010, Axis Gold ETF (1.5920) is the least risky to invest in followed by HDFC Gold ETF (2.4756). All the other funds are close to the market risk (3.8660). BSL Gold ETF (6.8512) is the most risky Gold ETF in 2011 followed by the other ETFs which are almost equal to the market risk (5.6589). In 2012 the standard deviation of the market (1.9859) has come down fairly from what it was in the earlier years probably because of the soaring gold prices in 2012. Table 3: Beta values of Gold ETF schemes listed on NSE from inception to December 2012. GOLD ETF SCHEMES LISTED ON NSE 2007 2008 2009 2010 2011 2012 GOLD BEES 0.9775 0.8908 0.9588 0.9277 0.9268 0.9590 GOLD SHARE 0.8727 0.8369 0.9444 0.8118 0.9553 1.0534 KOTAK 0.6866 0.8868 0.9067 0.9326 0.9421 0.7407 RELGOLD 1.0431 0.9084 0.9658 0.9198 0.9117 0.8818 QGOLD 0.9484 0.9474 0.9380 0.9055 0.9774 RELIGARE 0.9870 0.9651 1.3799 AXIS GOLD 0.8971 0.8975 0.9236 HDFC GOLD 0.9156 0.9622 1.0490 ICICIP 1.0253 0.8753 1.0174 BSL GOLD 1.0743 0.6953 IDBI 1.1213 1.0951 CR GOLD 0.9574 MGOLD 0.8861 Interpretation: Table 3 shows that all the Gold ETFs in 2007, 2008 and 2009 have defensive beta values compared to the market beta which is one. In 2010, all except ICICI Prudential gold ETF has a beta value higher than the market beta. In 2011, BSL and IDBI Gold ETFs have beta values more aggressive than the market beta. In 2012, beta values of Goldshare, Religare, HDFC, ICICI and IDBI Gold ETFs are more aggressive compared to the market beta.
Table 4: Treynor s index and its benchmark values of Gold ETF schemes listed on NSE from inception to December 2012. Treynor's index and its benchmark values of gold ETF traded on NSE 2007 2008 2009 2010 2011 2012 GOLD BEES -4.8480-7.3154-2.9383-4.7501-5.7514-7.6835 GOLD SHARE -5.3234-7.8494-2.9316-5.6916-5.5899-6.2313 KOTAK -4.8425-7.2733-3.1336-4.7410-5.5615-10.1109 RELGOLD 4.0795-7.3273-2.8930-4.8168-5.7968-8.3969 QGOLD -6.9219-2.9436-4.7006-5.9017-7.5149 RELIGARE -4.0437-5.3673-5.1064 AXIS GOLD -8.4812-6.0231-7.9438 HDFC GOLD -5.5710-5.4360-6.3727 ICICIP -4.9890-6.2776-7.1303 BSL GOLD -4.5034-10.4875 IDBI -8.3838-6.7068 CR GOLD -7.6767 MGOLD -8.2524 Benchmark treynor's index(gold spot market) -4.8893-6.1116-2.8247-3.8980-4.9314-7.2558 Table 4 shows the results pertaining to the Treynor s Index for the Gold ETFs as well as the Gold spot market. Treynor s Performance Index measures the fund s performance in relation to the market performance. It can be observed that in 2007 except for Reliance Gold ETF (4.0795)the other Gold ETFs performed almost at par with the market(-4.8893).but the high index of Reliance Gold ETF can be attributed to the fact that the scheme was launched only in November 2007. In 2008, all the schemes underperformed than the market (-6.1116). In 2009, all the schemes performed almost at par with the market (-2.8247). In 2010, all the schemes are underperformers but Axis Gold ETF (-8.4812) is the worst performer as compared to the market (-3.8980). In 2011, the three worst performers are IDBI Gold ETF (-8.3838) followed by ICICI Prudential Gold ETF (-6.2776) and Axis Gold ETF (-6.0231) compared to the market (-4.9314). In 2012, BSL Gold ETF (-10.4875) and Kotak Gold ETF (-10.1109) were the worst performers
while Religare Gold ETF (-5.1064) and Goldshare Gold ETF (-6.2313) were the best performers compared to the market (-7.2558). Table 5: Sharpe s Index and its Benchmark Values of Gold ETF schemes traded on NSE from inception to December 2012. Sharpe's index and its benchmark values of gold ETF schemes traded on NSE. 2007 2008 2009 2010 2011 2012 GOLD BEES 0.7013 0.4307 0.3220 0.0761 1.3971-3.4192 GOLD SHARE 0.8274 0.4053 0.3856-0.1413 1.3655-3.1099 KOTAK 2.1190 0.5079 0.3362 0.0641 1.4635-3.3675 RELGOLD 9.6039 0.2687 0.3607 0.0498 1.4531-3.5612 QGOLD 0.0410 0.3588 0.0626 1.4084-3.3999 RELIGARE 0.5185 1.4829-3.0336 AXIS GOLD -5.5617 1.3541-3.4972 HDFC GOLD -1.4418 1.3515-2.4538 ICICIP -0.9882 1.2701-3.0269 BSL GOLD 1.7753-4.6479 IDBI -2.7841-2.8927 CR GOLD -3.2742 MGOLD -3.1860 Benchmark sharpe's index(gold spot market) 0.5140 0.7649 0.2952 0.5501 1.6549-3.2842 Table 5 shows the results pertaining to the Sharpe s Index. Sharpe s performance index gives a single value to be used for the performance ranking of various funds. In 2007, the order of performance of the Gold ETFs is as follows 1.Reliance Gold ETF (9.6039) 2.Kotak Gold ETF (2.1190) 3.Goldshare (0.8274) and 4.GoldBEes (0.7013). In 2008, Kotak Gold ETF (0.5079) was the best performer. In 2009, all the schemes performed almost at par. In 2010, Religare Gold ETF (0.5185) was the best performer while Axis Gold ETF (-5.5617) was the worst performer. In 2011, IDBI Gold ETF (-2.7841) performed the worst while BSL Gold ETF (1.7753) performed the best. In 2012, HDFC Gold ETF (-2.4538) was the best performer while BSL Gold ETF (-4.6479) was the worst performer.
Table 6: Jensen s Alfa values of Gold ETF schemes listed on NSE from inception to December 2012. Jensen's Alfa of gold ETF schemes traded on NSE 2007 2008 2009 2010 2011 2012 GOLD BEES 2.4983 2.5558 1.2914 2.0996 3.4296 1.0416 GOLD SHARE 0.8908 2.8850 1.3321 2.5869 3.2891 0.3562 KOTAK 6.1535 2.4668 1.4386 2.0790 3.3539 2.6250 RELGOLD 10.9438 2.4479 1.2716 2.1330 3.5039 1.6014 QGOLD 1.8476 1.3238 2.0565 3.5344 0.9080 RELIGARE 2.1525 3.2405-2.0129 AXIS GOLD -0.6466 3.5738 1.2978 HDFC GOLD 1.4824 3.2546 0.3882 ICICIP 0.8827 3.6832 0.6174 BSL GOLD 2.6424 2.9544 IDBI -2.2547 0.0536 CR GOLD 1.2259 MGOLD 1.7299 Table 6 represents the results of Jensen s measure of the Gold ETFs on NSE. Jensen s measure is a measure of absolute performance because a definite standard is set and against that the performance is measured. The standard is based on the manager s predictive ability. In 2007, Reliance Gold ETF (10.9438) has the highest alpha value followed by Kotak Gold ETF (6.1535), Gold BeEs ETF (2.4983) and Goldshare (0.8908) ETFs. In 2008, Gold share ETF (2.8850) had the highest alpha value while Quantum Gold ETF (1.8476) had the lowest value. In 2009, Kotak Gold ETF (1.4386) performed the best while Reliance Gold ETF (1.2716) was the worst performer. In 2010, Goldshare ETF (2.5869) was the best performer while Axis Gold ETF (- 0.6466) showed a negative alpha representing very poor performance. In 2011, ICICI Prudential Gold ETF (3.6832) showed the highest alpha value while IDBI Gold ETF (-2.2547) showed negative alpha value. In 2012, BSL Gold ETF (2.9544) ranked the highest among all the 13 funds on NSE while Religare Gold ETF (-2.0129) ranked the lowest.
Conclusion The closing prices of 13 Gold ETFS listed on the NSE from inception to 31 st December 2012 have been retrieved from NSE website and also the closing prices of 10gms Gold has been taken from MCX website as the benchmark index. This data is studied using various tools to evaluate the risk adjusted performance of the Gold ETFs listed on NSE. It has been observed from the above results that no single Gold ETF has performed phenomenally well as compared to each other or as compared to the market. Also there is no fund which has consistently performed well. However the Gold ETFs have managed to achieve their objective. The aim of all the Gold ETFs that have been studied is to seek to generate returns that closely correspond to returns provided by the domestic price of gold through investment in physical gold. The ETFs adopt a passive investment strategy and seek to achieve the investment objective by minimizing the tracking error between the Fund and the underlying asset. This empirical study proves that investing in Gold ETFs can be a safe and convenient option as compared to investing in physical gold, as the risk adjusted performance of the Gold ETFs show returns almost at par with the returns provided by the domestic price of gold by investing in physical gold.
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